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The B.E. Journal of Theoretical Economics

Editor-in-Chief: Schipper, Burkhard

Ed. by Fong, Yuk-fai / Peeters, Ronald / Puzzello , Daniela / Rivas, Javier / Wenzelburger, Jan


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1935-1704
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Strategic Activism in an Uncertain World

Allard van der Made
  • Corresponding author
  • IEEF, Rijksuniversiteit Groningen Faculteit Economie en Bedrijfskunde, Nettelbosje 2, Groningen 9747AE, Netherlands
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Published Online: 2019-09-20 | DOI: https://doi.org/10.1515/bejte-2018-0103

Abstract

We model private politics in the presence of two-sided incomplete information. An interest group (IG) threatens to inform consumers about a firm’s damaging technology should the firm not adopt a clean technology. The IG does not know how costly adopting the clean technology is and the firm does not know how much the IG cares about the damages. In equilibrium an IG who cares a lot signals its type to the firm and the firm is more inclined to adopt the clean technology if it receives such a signal. However, impasses can occur: the firm does not adopt the clean technology despite the fact that the IG has signaled that it cares a lot and threatens to inform a large fraction of the consumer population. The IG never informs all consumers: as soon as a certain fraction of the consumers is informed by the IG the firm reduces its price and thereby reveals to the remaining consumers that it is employing a damaging technology. The IG’s actions increase consumer well-being, but decrease total welfare unless the cost of adopting the clean technology is likely to be low. Yet, since the IG is inclined to target firms with this property, a regulator might want to delegate information provision to the IG.

Keywords: asymmetric information; impasses; interest groups; private politics; technology adoption

JEL Classification: D80; L10; L31

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About the article

Published Online: 2019-09-20


Funding Source: Netherlands Organization for Scientific Research (NWO)

Award identifier / Grant number: 400-04-135

Financial support by the Netherlands Organization for Scientific Research (NWO) (Funder Id: http://doi.org/10.13039/501100003246, Grant Number: 400-04-135) is gratefully acknowledged.


Citation Information: The B.E. Journal of Theoretical Economics, Volume 20, Issue 1, 20180103, ISSN (Online) 1935-1704, DOI: https://doi.org/10.1515/bejte-2018-0103.

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